Investment schemes attract regulators’ attention

Regulators are investigating investment schemes being sold to financial advisers aimed at helping them avoid new laws to eliminate conflicted remuneration structures, according to industry sources.

Consumer groups and industry sources claim sophisticated alternative structures for managing and recommending products are being devised even before the government has finalised its proposals. “I am astonished that they are so blatantly and publicly attempting to circumvent these reforms," said
Jenny Mack
, chairman of consumer group Choice. Ms Mack criticised industry bodies for encouraging members to dilute the impact of the reforms by entering open-ended arrangements before the prospective bans were enforced.

Financial Services Minister
Bill Shorten
recently released changes intended to improve the quality of advice to investors, eliminate payment conflicts and strengthen regulators’ powers. It included the banning of trailing and upfront commissions and volume based payments, but in a concession to planners, will increase to two years the requirement that clients renew their advice agreement, from the originally proposed one year.

It will also ban commissions on risk insurance inside superannuation funds.

A government spokesman said most of the reforms are expected to begin by July 1 next year.

“But this is subject to the industry acting in good faith in terms of transitional arrangements," he said.

“While not wishing to make comments on specific practices, the government will act decisively if we get new evidence that the intent of the reforms is being circumvented," he said.